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Wednesday, September 12, 2018

Testing for crowd out in social nudges: Evidence from a natural field experiment in the market for electricity

Abstract

This study considers the response of household electricity consumption to social nudges during peak load events. Our investigation considers two social nudges. The first targets conservation during peak load events, while the second promotes aggregate conservation. Using data from a natural field experiment with 42,100 households, we find that both social nudges reduce peak load electricity consumption by 2 to 4% when implemented in isolation and by nearly 7% when implemented in combination. These findings suggest an important role for social nudges in the regulation of electricity markets and a limited role for crowd out effects.

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The first nudge, which we call the peak energy report (PER), targets household electricity consumption during peak load events that periodically occur when demand for electricity is high. The closest analog to the PER that has been studied is the nudge examined in ref. 16, which utilizes moral suasion instead of social comparison to promote conservation during peak load events. Efforts to curb peak load feature prominently in energy policy because there generally is a mismatch between wholesale and retail prices within and across days in the energy sector, and moving consumption temporally can have large effects on emissions and social welfare (17⇓–19). Studies targeting peak load typically focus on the consequences of price changes (20⇓–22). The second nudge, the home energy report (HER), targets aggregate household electricity consumption and has been studied widely (23⇓⇓⇓⇓⇓–29).

Conducted in Southern California during the summer of 2014, the experiment randomly assigned 42,100 households to receive either no communications, the HER, the PER, or both the HER and PER. Combining information on treatment assignment with more than 30 million observations of hourly household electricity consumption, we identify the conservation effect of each social nudge in isolation and in combination.

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We find that receipt of the PER causes a 3.8% reduction in electricity consumption during a peak load event and receipt of the HER causes a 2.1% reduction. When received in combination, the two social nudges cause households to reduce their electricity consumption by 6.8%. To put these effects into perspective, the price of electricity would have to be increased by nearly 70% during peak load events to achieve the electricity savings of receiving both the HER and PER. Experimental variation in the price of electricity during peak load events finds an own-price elasticity of −0.1 (16, 20⇓–22). Thus, to achieve the same reductions in consumption caused by the isolated effect of the HER and PER, prices during peak load events would have to be raised by 20 to 40%. To achieve the reductions caused by the combined effect of the HER and PER, electricity prices would have to be increased by nearly 70%. Furthermore, these findings suggest that the effect of the PER is not crowded out when households are already assigned to receive the HER. While we make no claim that these estimates will generalize across locations and domains, they provide evidence on the dynamics of nudging to achieve multiple policy targets in the market for electricity.

(A) We plot the differences in the log of electricity use between each treatment group and the control group on the 3 d with peak load events. (B) We compare the difference between the control group and the HER+PER group with the summation of the individual differences between the control group and the HER group and PER group. Vertical lines indicate the peak hours from 1300 to 1800 hours.

Average treatment effects during peak hours (1300–1800 hours) from a regression of log electricity use on treatment indicators and controls for each hour in the sample, the HER deployment wave, and the medium used to communicate the PER. We plot the total treatment effects on the 3 d with peak load events in the summer of 2014. Bar labels represent the point estimates, and we report corresponding SEs in parentheses. We also test the hypothesis of no crowd out by comparing the treatment effect of the HER+PER group and a summation of the treatment effects of the HER group and the PER group. We report the difference and corresponding SE.

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